Insolvency Service

Insolvency Service

The Insolvency Service is an executive agency of the Department for Business, Energy and Industrial Strategy with headquarters in London. 

The Insolvency Service administers compulsory company liquidations and personal bankruptcies and deals with misconduct through investigation of companies and enforcement. It also makes redundancy payments in cases where a company is insolvent.

Company structure and corporate insolvency

An insolvency service, either voluntary or involuntary, is when a company with its assets, undertakings or personnel becomes unable to meet its obligations to its creditors or business.

The main area of insolvency action concerns a company’s operations, its business or how it carries on its business. Personal insolvency action is mostly about the financial affairs of individuals and deals with their finances.

Types of insolvency

There are three main types of insolvency:

Voluntary insolvency

Involuntary insolvency

Bankruptcy (company)

A company in the UK is considered to be a going concern if it can still trade in the medium term.

Involuntary insolvency (including bankruptcy) is a type of insolvency that comes about when the company is unable to meet its creditors’ demands.

A company can go bankrupt if it owes more money than it has the ability to pay. The company must have had assets that could be sold in the future or enough trading earnings for a solvent company to meet its debts, and if there was no one to come in and buy the company’s assets at a price that it can afford. A company cannot go bankrupt if its liabilities exceed its assets.

What does ‘going concern’ mean?

In bankruptcy, a company is considered to be a going concern when it is generating enough trading revenue to repay all its creditors in full within a year.A company cannot go bankrupt if its liabilities exceed its assets. The company must have had assets that could be sold in the future or enough trading earnings for a solvent company to meet its debts, and if there was no one to come in and buy the company’s assets at a price that it can afford. A company cannot go bankrupt if its liabilities exceed its assets.

Voluntary insolvency

This is when a company is temporarily unable to meet its debts. There are different categories of voluntary insolvency, including bankruptcy and voluntary liquidation.

Bankruptcy

Bankruptcy comes about when a company cannot afford to pay its debts or when it is no longer trading. A company must be solvent and have assets that could be sold in the future to repay its debts.

Bankruptcy has nothing to do with bankruptcy in the US. In the UK, bankruptcy does not need to be discussed with creditors before it is declared, as it is a civil rather than a criminal matter.

It may also not be possible for the business to pay its debts if it is unable to trade. Bankruptcy and liquidation are two different processes.

Bankruptcy is a legal procedure which allows a company to recover some of the money it owes to its creditors. It will also enable the company to continue to trade while it tries to recover.

Bankruptcy can be costly for the company, but does not affect a company’s employees or its business operations.

Bankruptcy protection for individuals

This comes about if you are insolvent or in danger of becoming insolvent, and will normally be covered by a credit or overdraft facility provided by your bank, or if you can borrow from a company or personal loans from family members.

It should not be used to avoid personal bankruptcy in the US. The process of applying for Chapter 13 or Chapter 7 bankruptcy should not be avoided, as it could lead to an interest charge of up to 25% for any monies owed.

Why would you be worried?

People who find they are in financial difficulty often consider bankruptcy protection as a last resort. They think they should do everything they can to save their business. The reality is that there is nothing to lose if a company goes bankrupt, apart from your personal money.

Bankruptcy protection can allow companies to recover their costs, recover money owed to them, pay employees who can now be paid, and sell off any assets that could be sold for money to repay creditors. It can also enable a company to continue trading to pay any outstanding debts to creditors.Bankruptcy protection is not a magic wand. It does not automatically lead to a successful outcome.Bankruptcy protection does not affect the company’s employees.

The bankruptcy trustee has a duty to look after the company’s employees and pay them as soon as the company has been liquidated. If the business is unable to pay its employees, the trustees will often write off your tax debts as you owe unpaid taxes.The trustees are expected to recover money owed to creditors, but will need to rely on how well the business is performing to determine if it has enough cash to pay its debts.

How much of a dent will bankruptcy protection have in your business?

It is a useful tool for many companies, but there are many risks.

Wills are subject to many risks in the event of an executor’s bankruptcy, as the will becomes vulnerable to challenge, can be difficult to check, and must be updated regularly.Partnerships may find that they need to enter into agreements to protect them against the insolvency of the business.If your company was trading to make a profit, the bankruptcy protection may reduce this, but you can still stay in the running for a tax refund. If your business is really in trouble, you can expect some heavy penalties for declaring bankruptcy in the UK.

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